If you needed evidence that safety is arguably the most critical aspect when it comes to investing in the biotech sector, then look no further than Orexigen Therapeutics (Nasdaq: OREX).

The stock suffered a spectacular implosion on Tuesday after the Food & Drug Administration rejected the company's obesity drug, Contrave. Regulators asked Orexigen to run another clinical trial, due to side-effects concerning the heart.

It's a stark reminder that the FDA continues to take drug safety issues seriously. How seriously? I'll let this 5-day chart of Orexigen show you...

The FDA's rejection of Contrave came hot on the heels of two other obesity drug rejections in recent months - from Arena Pharmaceuticals (Nasdaq: ARNA) and Vivus (Nasdaq: VVUS).

Investors in those stocks suffered devastating losses, too...

Prior to the FDA decisions, investors frequently asked me which of the stocks they should buy, assuming that at least one of the drugs would get approved.

But I never recommended any of the companies because I was concerned about safety issues.

Speaking of which, here's another prime drug candidate to get crushed at the hands of the FDA...

The FDA: Masters of Drug Destiny

Make no mistake, the FDA is very conservative when it comes to safety. No matter how effective a drug may be, regulators will not approve it for the mass market if they're concerned about safety issues.

They're essentially stewards for the community, but they're also engaging in that common tactic known as "CYA" - Cover Your... (Well, you know the rest!) You need only look back to drug scandals like Vioxx to understand why the FDA doesn't want to have to respond to an angry public or face multi-million-dollar lawsuits if people start getting sick or dying due to an approved drug.

But despite safety concerns, many investors still put blinders on when it comes to certain drug companies. Let me take off the blinders and reveal another drug that's going to get rejected because of safety issues...

"Elevated Liver Enzymes:" Three Words That Could Crush This Stock

Mipomersen is a drug that treats extremely high cholesterol.

In two Phase III studies, it reduced cholesterol by 36% and 37%, compared to 13% and 5% for patients receiving placebo.

There isn't much debate that the drug works. But in recently concluded Phase III trials, patients experienced elevated liver enzymes - a sign of toxicity. The data was consistent with earlier trials.

The drop out rate due to adverse events was high - 31% and 43% - compared to 5% and 17% for the placebo group.

The problem with elevated liver enzymes is that even when they're not at dangerous levels - just at the upper limits of normal - they can rise as the patient continues to take the drug. Remember, high cholesterol isn't an acute problem. You don't just take a drug for a week and then you're cured.

A patient on mipomersen will likely have to take it for years. So what happens to those elevated liver enzymes when a patient has taken the drug for two years... three years... five years...?

Of course, Genzyme and Isis' management have downplayed the toxicity issues, claiming it's not a big deal. But the FDA has asked for more data from Genzyme, which will likely delay the approval process.

And ultimately, I suspect the FDA will think it's a very big deal and will reject the drug.

By the time that occurs, Genzyme will likely be a part of Sanofi-Aventis (NYSE: SNY), as the two companies are currently in merger talks. So Isis shares could get hurt the most.

The bottom line is this: When you're researching drugs in clinical development - and the companies behind them - make sure you pay attention to what is arguably the most critical aspect: safety data. The FDA certainly is - and if you don't, you could end up in the same boat as Orexigen Therapeutics investors.

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